Partnering with your attorneys on major lawsuits: intelligent and realistic litigation budgeting and preparation can be critical to the outcome of a case and can bring good financial results for the company and the law firm.

The rising cost of legal expenses related to high-risk litigation is a concern for all companies and the executives responsible for a company's financial health. In fact, the single most important priority for most corporate legal departments is controlling legal costs, and a litigation budget, or estimate, is perceived as integral to controlling costs. Consequently, most companies with any sophistication will either request or demand litigation budgets for high-risk litigation.

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This prompts a series of important questions:

How does the litigator determine the size and scope of a case in order to create a meaningful litigation budget? If you were considering hiring a contractor to remodel your kitchen, the first thing you would ask for is a quote: How much will the remodel cost? The contractor, of course, couldn't answer that question unless he assessed the scope of the work and had a complete understanding as to the exact dimensions and features of the remodel--all the way down to the type of flooring, cabinets, fixtures, etc. that you wanted.

As consumers of litigation services, most companies ask the same question: How much will this case cost us? To answer that question, the litigator needs to understand the size, scope and features of the litigation assignment before the budget is created. The following are the baseline questions that the litigator needs to answer:

* How many witnesses need to be interviewed and/or deposed? And, where are they located?

* How many documents will the parties produce?

* What substantive, non-discovery motions will likely be filed? Are there any unique legal issues that will require a lot of research?

* Will the other side file a counterattack and, if so, how much time and energy will that require?

* How many experts are needed, and on what topics? How will I find them?

* What assistance will the client provide to the litigation team in terms of gathering documents, reviewing documents, technology tutorial, witness preparation/coordination, locating and educating experts, etc.?

* What will be the level of cooperation from opposing counsel? Will the other side willingly produce documents and witnesses; or will all requests meet with opposition and require motions to compel?

* Are there any other factors that will add to the costs--travel, witness problems, judge's peculiarities or local rules, etc.?

Additionally, the litigator needs to understand the client's view of the litigation. Is it important to the client's brand, strategic plan or position in the marketplace? In other words, is there something, apart from just winning or not losing the case, that needs to be considered in how the case is either prosecuted or defended? These factors could affect how the case team litigates. Put another way: does the client want a scorched-earth, turn-over-every-leaf-and-rock approach? Or just uncover the essential facts?

Should the litigator determine the case staff before creating the budget and, if so, how is that done? The short answer is "yes." The case staff needs to be determined before the budget is created because the estimate will be based largely on three factors: 1) the lawyers and paralegals on the case team; 2) the projected time each of them will spend on the case; and 3) the anticipated time each team member will spend multiplied by that person's agreed-upon billing rate. Of course, the size of the team will be largely influenced by the size and scope of the case.

One important understanding that the lawyers need to reach with the client is the level of involvement of either the lead lawyer or other partners on the litigation team. If, for example, the client wants the lead lawyer, typically a partner, to be involved in most or all aspects of the case, the estimate/budget will likely be higher because the lead lawyer will have the highest billing rate. Often, the client wants to minimize fees, but have the lead lawyer involved in all aspects of the case. These two desires are often at odds.

All pertinent aspects of the engagement need to be documented in a formal engagement letter. As part of that agreement, the parties should also address whether the budget is just that--a budget (which imposes a cap on the amount of fees and costs to be spent) or a good-faith but non-binding estimate of the anticipated fees.

How does the litigator create the actual budget? Some litigators go back to budgets that they've created previously for "similar" cases and just plug in new numbers, based on any perceived differences between the new and the old case. That's not a good thing to do. No two cases are the same, and something will get lost in translation. The litigator needs to start from scratch, and only after conducting the thorough due diligence discussed above. Otherwise, the budget won't be worth the paper or spreadsheet it's written on.

The litigator should begin by "head-shrinking" both sides' discovery process--determining what discovery both sides will likely conduct. In federal court actions, it's easier to determine both sides' discovery plans because these need to be outlined and presented to the court as part of an early case management plan.

In general, a discovery plan should outline what formal and informal discovery (such as interrogatories, requests for documents, depositions) both sides will likely engage in and then estimate the attendant time and costs.

Figuring out the discovery plans is very important to the budgeting process because most high-risk civil cases settle--and the settlements typically occur either during or shortly after the close of formal discovery. In fact, most high-risk cases don't go to trial. For that reason, some lawyers rarely provide budged amounts through trial at the outset of an engagement, unless specifically asked by the client to do so.

If trial fees and costs are added, the ultimate number, of course, will be much higher because trials are inordinately time-consuming. But, it's like planning for a contingency that is not likely to occur. You want your litigator to work the case as if it will go to trial. It's just that most cases don't go to trial, and budgeting as if they will seems unnecessary.

The other major cost area will be amounts spent on expert witnesses. All complex civil cases will have a small cast of expert witnesses, each of whom will have relatively high billing rates, making them major contributors to the costs of the case. The litigator needs to determine the number and type of experts each side is likely to call and factor those costs into the budget.

As a final check, the litigator should take a look at the Uniform Tasks-Based Billing Codes promulgated by the American Bar Association. These are essentially a complete listing, with attendant billing code numbers, for virtually every task involved in handling a civil case. The tasks cover everything from the initial assessment through the discovery phase through trial and through appeal. (These billing codes can be located on the Internet at www.abanet.org/litigation/litnews/practice/uniform.html.)

How should the budget/estimate be presented to the client? There are three critical rules to follow here. First, litigation budgets should be prepared in Excel, because literally every company and every finance department is familiar with Excel. Plus, using a spreadsheet is flexible, and allows attorneys to make quick changes to the cells in the spreadsheet, based on coding formulas.

Second, the fees and costs to be incurred should be tied to the client's financial reporting quarters, so that appropriate quarterly reserves can be set. Third, the budget should be presented in person. This affords the client the opportunity to ask questions about the budget and the opportunity for the litigator to explain any underlying assumptions.

How can the client reduce or better control the fees and costs? The following is a list of the most important ways to reduce fees and costs:

* Limit motions that have a low chance of success. The preparation of motions is very time-consuming and, hence, expensive. Only those motions that have a very good chance (much better than 50 percent chance of winning) should even be considered for filing.

* Cooperate with the other side in discovery matters and expect and demand reciprocation. The combination of protective orders, which allow the parties to produce documents under protective terms, and the broad scope of civil discovery means that trying to fight off discovery demands for sensitive information is typically a losing proposition. Judges also hate discovery motions, and the party refusing to turn something over usually loses and sometimes ends up paying the other side's fees for having to bring the motion.

* Go electronic. Documents should be scanned once and then reviewed and processed electronically to avoid excessive copy charges.

* Appoint a client liaison who will obtain information, locate witnesses, and run interference for the team inside the client/company. In short, this person should do things that you would otherwise have to pay a lawyer or paralegal to do.

* Last, but certainly not least, look for and exploit every opportunity to settle. A settlement is a guaranteed result and ends the litigation and, of course, the fees and the costs. The opportunities may come after a particularly good ruling by the judge on a motion or after a particularly bad deposition by one of the opposing party's witnesses. Such opportunities should not be allowed to pass without serious consideration given to whether an effort at settling the case should be explored.

David Dolkas is a partner at law firm McDermott Will & Emery in Silicon Valley, Calif. He can be reached at ddolkas@mwe.com.

RELATED ARTICLE: takeaways

** The single most important priority for most corporate legal departments is controlling legal costs, and a litigation budget can be integral to reining in expenses.

** The litigator needs to understand the size, scope and features of the litigation assignment before the budget is created by asking a series of questions.

** Figuring out the plans for legal "discovery" is very important to the budget because most high-risk civil cases settle during discovery or just after it is completed.

** Legal fees and costs to be incurred should be tied to the client's financial reporting quarters, so that appropriate quarterly reserves can be set.

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